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Good-bye, Boeing?

An artist's sketch of the Boeing 737 MAX 8

The headlines are scary: Machinists reject contract. Boeing shopping the 777X to other sites. 777X engineering to be done outside Puget Sound. Boeing to transfer engineering work to Long Beach, Houston, St. Louis and Moscow. The 787-10 may be built in South Carolina, not Everett. Boeing’s commitment to the Pacific Northwest is waning and soon will end.

OK, let’s get a grip. Boeing is not leaving the Northwest and will remain a dominant employer in the region for the foreseeable future.  This is true, despite all the headlines, for some pretty simple business reasons that first-year MBA students understand all too well.

It’s called diversification. Google didn’t stay in Mountain View but instead expanded to other places with smart, creative people — like Seattle. Microsoft did not stay stuck in Redmond but expanded around the world. Amazon is building distribution centers around the country. All soft products, you say? OK, Paccar has expanded to China, Brazil and elsewhere to take advantage of markets and, yes, they still build great trucks here.

It is also called flexible manufacturing. If an earthquake hit here, Boeing would have some options. If a hurricane hit South Carolina, the same would be true here. The 787-10 may prove so popular, one plant could not build them all in time. Production shifts around — Everett, South Carolina or elsewhere.

Boeing has a huge investment in the Pacific Northwest in plants, equipment, personnel, history, corporate culture and so forth.  Sure they moved their headquarters to Chicago, but only about 200 to 300 people work there — it is a corporate island that serves a far-flung multi-national corporation.

The attention right now is on the 777X. The 777 entered service in 1995 and has grown to five different models. It is a wide-bodied twin-engine airplane designed for long international flights, larger than other twin-jets but smaller than the 747. The 777X will have a new composite wings and more efficient engines. Boeing boasts that the new 777s “will be the largest and most efficient twin-engine commercial jet in the world with the lowest operating cost per seat of any commercial airplane and no competitor in its market segment.” Despite a union vote against contract concessions, the region may still have a better than even chance of capturing the work.

Boeing also has a strong family of jets to meet many airline needs. And Boeing bet smartly some years ago that airlines would opt for long-haul point-to-point operations vs. a hub-and-spoke system.

The Airbus A380, which can carry as many as 800 passengers, has languished because it is the wrong plan for most airlines. It works well on some large long-haul routes for airlines such as Emirates, Singapore and Qantas (the largest airlines using the A380), but that’s about all.

Want to get a sense of where Boeing is really headed? All you have to do is read Boeing’s forecast for jet sales over the next 20 years. The company released its annual update in June and it forecasts a huge increase in the number of airplanes needed by world airlines, leasing companies and freight carriers. The forecast is up nearly 4 percent from last year, totaling nearly $5 trillion. That’s $5,000,000,000,000.

What’s driving the forecast is Asia. “By 2032, Asia-Pacific will be by far the world's largest travel market," said Randy Tinseth, vice president for marketing at Boeing Commercial Airplanes at a news conference in June. "There is no doubt the industry's center of gravity is moving from the U.S. to Asia. Right now, 37 percent of all traffic touches Asia — by 2032 it will approach 50." Another factor is the rise of airlines such as Emirates, which is likely to be a huge 777X customer and may have more to say about where it is built than anyone, including the machinists.

You can see that shift right here. On June 16, Delta began non-stop service from Seattle to Shanghai. That goes with a flight that began in June from Seattle to Tokyo’s Haneda Airport.  Seattle was the largest West Coast city without nonstop service to Haneda, which is the preferred Tokyo airport for many business travelers due to its proximity to the city's central business district. Coupled with code sharing with Alaska Airlines, Delta is increasingly seeing Seattle as an Asian hub.  It will begin a Seattle-Hong Kong flight next year.

Why is Boeing not leaving the Northwest?

Boeing’s home is here. From spruce, fabric and propellers on Lake Union to high-tech composites and bypass engines in Renton and Everett, Boeing has a 100-year history of building airplanes in the Seattle area. In World War II, more than 30,000 people worked at Boeing Plant 2, building at times up to 300 aircraft a month. Boeing cares about its long-time home, illustrated by its commitment to environmental improvements that are vital to the restoration of the Duwamish Waterway.

The brains are here — the engineers, scientists, technicians and the computer-aided design and manufacturing experts. These are the people who know how to design airplanes and make complex production systems work. Problems with the 787 Dreamliner were finally resolved when they were brought “home.”

The high quality work force is here. These are the people who know how to assemble an airplane and make it right. Increasingly, the region is recognizing the need for additional skilled workers. Programs like Air Washington, recently awarded a $20 million federal grant, will help ensure the workers are not only here now, but will be here in the future.

The supply lines converge here. The production rate of 737s is expected to increase over the next few months and next year. That means the supply lines that provide factory employees on each plane with the 367,000 parts, an equal number of bolts, rivets and other fasteners, plus 36 miles of electrical wire, are here and working smoothly.

What’s needed? When state officials geared up to keep the 737 Max production here, one of the key elements of the effort was education. Boeing’s work force is aging and there are not the kinds of workers in the pipeline that has kept Boeing at the forefront for generations.

So, the state should pay more attention to producing the quality manufacturing and engineering workers needed and put together an integrated research agenda linking Washington’s research universities and the aerospace industry. Some steps have already been taken: Gov. Jay Inslee and his Office of Aerospace and its director, Alex Pietsch, are charged with supporting the more than 1,250 aerospace-related companies in the state. The governor’s office notes that the companies “design and manufacture products ranging from tires to bolts to in-flight entertainment systems” as well as airplanes.

Boeing is important but it is nowhere near as dominant as it once was for the region. Back in the Boeing bust of the late 1960s-early 1970s, when Boeing trimmed more than 60,000 jobs, almost one manufacturing job in every three was somehow tied to Boeing. Seattle has grown up and become a major diversified city.

In September, when the state released its August figures on employment, it said the unemployment rate in Seattle was 5.2 percent, up a bit from the 4.8 percent in July. (The report for September scheduled for mid October was canceled because of the federal government shutdown.) The state average was 7 percent.

This comes despite the fact that aerospace is losing employment. Boeing said in March it planned to lay off about 800 workers by the end of 2013, mostly from the 747 and 787 jet programs in Everett. Overall, the company plans to reduce its Puget Sound-based workforce by an estimated 2,000 to 2,300 through attrition and other means.

That makes landing the 777X construction in Puget Sound a big deal. But diversifying its manufacturing base may also means the plane could be built elsewhere as well. Boeing’s operation in Long Beach, Calif., is the best bet — there is an assembly line there with a well-trained work force that has been building C-17 Globemaster jets for the Air Force for decades. Boeing said in September it would close that production line after it finished the last of an order from India.

Washington State still has the cachet to land the production here, especially the construction of the new wing. A story out of the Paris Air Show this past summer is illustrative. Airbus Americas’ Chairman Allan McArtor said Airbus, Boeing’s chief competition with U.S. engineering centers in Wichita and Mobile, Ala., already, would seriously consider locating one in Washington State.

“We are attracted to Washington State for the same reason we were attracted to Wichita. That’s where the talent is,” according to the article in The Seattle Times. “If you want to have access to the talent that developed over the last 100 years of aviation, Washington is very fertile ground.”

Duh.

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